WEEKLY FAYRE – Monday, 27th July 2020

July 27, 2020

“Ah, you should see Cynddylan on a tractor.
Gone the old look that yoked him to the soil,
He's a new man now, part of the machine,
His nerves of metal and his blood oil.
The clutch curses, but the gears obey
His least bidding, and lo, he's away
Out of the farmyard, scattering hens.
Riding to work now as a great man should,
He is the knight at arms breaking the fields'
Mirror of silence, emptying the wood
Of foxes and squirrels and bright jays.
The sun comes over the tall trees
Kindling all the hedges, but not for him
Who runs his engine on a different fuel.
And all the birds are singing, bills wide in vain,
As Cynddylan passes proudly up the lane.”

 

 

Rev RS Thomas – cleric & poet – 1913-2000

 

 

Those who follow EFL Championship football were fully expecting a London-based final between Brentford and Fulham for the final place in the Premiership for next season. They were the form teams. However, one of the Welsh Brigade, Swansea City, at home to Brentford, came with ‘a late rattle on the rails’ last night. Brentford’s Rio Henry must consider himself to have been very unlucky to have been sent off for a robust tackle, resulting in Swansea winning the first leg 1-0. Fulham are on parade this evening in Cardiff. The ‘Bluebirds’ will be hoping to pull off a ‘Welsh double’. Conversely, the Cottagers, very much including me, will be praying that Mitrovic will have brought his scoring boots with him to Cardiff City Stadium.

 

 

INDEX

20th July 2020

24th July 2020

% Profit/Loss

FTSE

6290

6123

-2.66%

DAX

12898

12838

-0.47%

CAC

5058

4956

-1.94%

DJIA

26660

26469

-0.72%

S&P 500

3224

3215

-0.44%

NASDAQ

10526

10363

-1.55%

SHANGHAI

3243

3196

-1.45%

HANG SENG

25019

24705

-1.26%

NIKKEI 225

22807

22751

-0.25%

 

It has been some months since geopolitical disagreements left their adverse marks on global equities. Certainly, for the latter part of this past week, the US and China gave it their best shot to make up for lost time. The two of them squared up towards each other with jingoistic words and actions not seen for some months and one suspects that the egregious Putin and his cohorts were salivating in the wings at the prospect of trouble leading to economic conflict. The previous issues concerned a US/Sino trade war. Those ingredients would appear to need only a metaphorically lit match to rekindle the smouldering embers of conflict 

The US is still harrumphing at China over its lack of discipline in failing to control Covid19. Add to that the fact that we have seen a ‘tit-for-tat’ reaction from China, who responded to the US closing its consulate in Houston on suspicion of intellectual property espionage, by forcing the US to close its operation in Chengdu. One assumes that these altercations were predicated on the action taken by the US and many of its allies distrusting Huawei’s 5G telecom system, with the UK joining in on the act. The UK’s decision to terminate Huawei’s participation in UK 5G networks by 2027, will doubtless have repercussions in any ongoing UK/Sino trade deals as well as investment in the UK. For a start, it looks as though Tik-Tok, China’s global social networking platform, so popular with children and adolescents, will not be opening its European head office in London.

President Trump is now considered far from certain to be re-elected in November’s Presidential election. At present, global diplomacy looks to be in a parlous state of disrepair, leaving the possibility of any trade agreements being negotiated, very unlikely. Not only do I refer to China and the US almost certainly remaining in deadlock, with little prospect of agreement, but there are also very great doubts that the UK will agree any deal with the US by the end of the year, according to Mike Pompeo, the US Secretary of State. Were Joe Biden to be elected, I am told that ‘hell has a better chance of freezing over’ than a Democrat-led Congress agreeing one with a Boris Johnson’s administration. This could leave the UK Government between a rock and a hard place – no Chinese and maybe no US trade deals.

What the table above does not tell us is that up until Wednesday evening investors’ appetite for risk was not exactly insatiable, but certainly their hunger for gains still required feeding, until the cumuli-nimbus clouds of geopolitical uncertainty were starting to gather over Washington and Beijing. Thursday and Friday saw markets pullback, especially by funds in the tech sector. The NASDAQ had recently reached an ‘all-time high.’  Considering that expectations for 2nd quarter US earnings were far from ebullient, to date, the quality and outlook were not too bad, though the earnings floodgates do not really open until this coming week. Microsoft and Apple started the reversal on Thursday both losing just over 4%. The growing negative sentiment was compounded on Thursday but a further demoralising set on initial Jobless Claims, which saw a further 1.4 million workers seeking benefits. Momentum for the recent equity rally could also be attributed to hopes and expectations that a vaccine could be approved by Christmas, with Pfizer/BioNTech, Moderna, Astra Zeneca and Oxford University showing the way. The ‘vibes’ are encouraging, and the world waits expectantly for a green light. Synairgen, a small company based in Southampton, may have developed a treatment to control Covid19, resulting in its share shooting up over 400% in recent days.

There were two important pieces of economic data posted by the ONS this week. Firstly, the explosion of public borrowing hit new heights. The UK borrowed £35.5 billion in June 2020, though less that the £55 billion it borrowed in May. A total of £129 billion was borrowed in the first three months of 2020/21 (99.6% of GDP), with the UK’s National Debt increasing by £195 billion to just short of £2 trillion. It was cheering to see that UK retail sales rebounded sharply +13.9% month on month (Est: +8%), June 2019/20 -1.6% (Est: -6.4%), Quarter on quarter (April/May/June) -9.5%. Unsurprisingly on-line sales increased by 54%, though sales on the High Street dipped by 33%.

The US earnings season started gathering some momentum last week. Coca-Cola’s numbers were accepted by investors, despite income dropping 28% in the last quarter and sales by 16%. Lockheed Martin’s efforts were stellar with revenue increasing by 12.4% and aero sales by 17%. Intel has been one of the least impressive of the larger NASDAQ performers. The outlook for the world’s largest chip maker was disappointing and investors vented their spleen, taking the stock down by 16% on Thursday. IBM’s efforts were neutral. Twitter seemed to be struggling to increase advertising revenue (-23%). The Company, however, did post a 34% increase in subscribers to 186 million, triggering a 4% rise in its share price.

Microsoft’s revenue in the last quarter grew by 13% to $38.03 billion, with a profit of $11.2 billion. Its acolytes were expecting more from this software titan, formed by Bill Gates in 1975 in Seattle, employing 145,000 people globally – now worth $1.5 trillion. Microsoft’s shares drifted by 5% on the week. The investing public enjoyed Elon Musk’s Tesla’s results – with revenue of $6.04 billion and an unexpected profit of $104 million. This Company shares have added over 200% this year to $1417 (-6% on Friday), valuing the operation at $262 billion, more than Toyota. Toyota makes approximately 10 million units a year; Tesla about 100k. What a premium this share price commands for expectations! Since Bob Iger handed over Disney’s reins to Bob Chapek, Covid19 has dealt its film productions a heavy blow. Further box-office favourites, such as Avatar, Star Wars and Mulan have been postponed. The earnings floodgates open in earnest next week, as can be seen below. 

There was little in the way of cheerful news here in the UK last week. Further redundancies started to rack up from Burberry, Ted Baker, Harvey Nichols, Zizzi and Ask Italian restaurants, BA pilots and finally James Dyson’s enterprises, which employs 14,000 globally, is to let 900 employees go – 400 from his Wiltshire factory are likely to be included. Vodafone posted a neutral trading update with revenues down just 1.3% for the last quarter. There was further disappointment when CEO Nick Read announced that its European Towers business would be floated in Frankfurt rather than London – C’est la Vie. IAG has geared itself up for a €275 billion rights issue. Centrica has attempted to take the heat out of its kitchen by selling its US Direct Energy operations for £2.7 billion. Melrose, which acquired GKN in a hostile takeover for £8 billion, appears to be struggling in the current climate and may be forced to sell other assets for circa £3 billion in the hope of buying other distressed synergistic operations. It is also possible in a cost-cutting exercise, that 10% of its ‘56,000 work force’, which makes wings for aircraft in Bristol and West Midlands factories, may be forced into redundancy.  

Alison Rose, the CEO of RBS announced that this battle-scarred operation, changed its name to NatWest from last Wednesday and the bank will be implementing £3 billion of annual cost cuts (£7 billion down to £4 billion).  Thousands of jobs are likely to go in the hotel sector before too long according to the Sunday Times. Within the Marriott and Millennium Copthorne empires, 1000 jobs are vulnerable, especially at the 60 hotels Marriott manages. IHG, owners of Hilton and Holiday Inns have also announced 2100 job cuts. Stagecoach after last week’s numbers are to let 200 staff go.  Even Greggs bakeries, which posts figures next week may have seen sales drop by 75% - jobs again are vulnerable. Barclays, Lloyds Banking Group and NatWest post results this coming week. The main interest will be provisions for bad debts, which are expected to come in at £4 billion – quite an eye-watering sum!

Ending on  a positive note, Unilever, whose brands includes Hellman’s, Marmite, Bovril, Dove, Surf, Ben & Jerry’s, Flora and Vaseline posted a very satisfactory -0.1% drop in like for like sales in the last quarter (shares up 7% on Thursday), resulting in Unilever, under Alan Jope’s leadership, becoming the largest company in the FTSE 100, valued at £122 billion. Amazon’s value? - $1.5 trillion

UK companies posting interim results this week – Monday – Ryanair, Tuesday – Greggs, Moneysupermarket, Smith & Nephew, Aveva, Weir Group, Unite, Reckitt Benckiser, Wednesday – Barclays Bank, Glaxo SmithKline, Rio Tinto, Taylor, Invidior, Rentokil Initial, Wimpey, Standard Chartered Bank, 3i Group, RSA, Willis Towers, Thursday – Anglo American, Astra Zeneca, Countrywide, BAE Systems, Inchcape, Royal Dutch Shell, Lloyds Banking Group, Friday – BP, RBS, British American Tobacco, Intertek, London Stock Exchange

US Companies posting interim results this week – Monday – Hasbro, Tuesday – DR Horton, McDonald’s, Xerox, Jetblue, Starbucks, Amgen, Visa, Denny’s, eBay, Mondolez, United Technologies, Wednesday – General Dynamics, Boeing, Boston Scientific, Bunge, Lam Research, Archer, Daniels Midland, Facebook, PayPal, General Motors, Thursday – Proctor & Gamble, Dupont, Conoco Phillips, UPS, Mastercard, Kellogg, Pitney Bowes, Kraft Heinz, Valero Energy, Newmont Mining, Apple, Amazon, Gilead Sciences, US Steel, Xilinx, MGM Resorts, Expedia, Ford Motor Company, Friday – Chevron, Exxon Mobil

Economic data to be posted this coming week – Monday – US Durable Goods, Tuesday – CBI Distributive Trades, US Consumer Confidence – Wednesday – UK Mortgage approvals & Lending, BoE Consumer Credit, US MBA Mortgage Applications, US Goods Trade Balances, US Pending Home Sales, US FOMC Meeting, ECB Meeting, Thursday – UK Nationwide House prices, EU Consumer Confidence, US Initial Jobless Claims, US GDP Growth Rate (EST -34%), Friday – EU Growth Rate (EST: -12%), US Personal Income & Spending,  US Chicago PMI, US Univ of Michigan Consumer Sentiment